SFO fined for incorrect VAT claims

The Serious Fraud Office (SFO) was fined more than half a million pounds for owing HMRC £4m in VAT.

The fraud watchdog used to reclaim VAT on legal fees and some specialist staff.

After a new chief financial officer reviewed its VAT policy, the SFO decided to stop re-claiming VAT on external counsel fees in December 2012.

In 2013, the SFO, which investigates the most serious and complex cases of fraud, bribery and corruption, asked HMRC to confirm how it should account for recovered VAT on outsourced services.

“These discussions, coupled with an HMRC assessment which took place in October 2013, led to the SFO having a liability for reclaimed VAT in previous years… amounting to a total of £4,635k [£4.6m] including a penalty of £564k, interest of £104k, accrued tax of £798k and outstanding tax of £3,169k,” the SFO said in its annual report for 2013-2014.

It shows that the £660,000 in penalties and interest were accounted for as programme costs under civil litigation - sums that one might assume should be devoted to pursuing wrongdoers.

The annual report indicates that £1.9m of the VAT repayment was accounted for as fees for legal counsel, £580,000 was included as other staff costs; and £17,000 under IT costs.

The VAT bill was partly responsible for the SFO net operating costs rising from £38.1m in 2012-13 to £51.7m. Costs associated three “blockbuster” investigations were also to blame along with a £200m damages claim from businessman Vincent Tchenguiz for malicious prosecution, trespass, false imprisonment and misfeasance in 2013.

The investigator frequently comes under fire for ineptitude and is castigated by Private Eye as the “Serious Farce Office”. In February, the Financial Times reported that SFO director David Green QC had asked the Treasury for £19m in exceptional funding, equivalent to more than half its overall annual budget.

But Green struck an optimistic note in his introduction to the 2013-14 annual report. “We have had eight prosecutions of 18 defendants either concluded or in progress. The conviction rate by defendant was 85%. All of our cases are high profile and therefore high risk.

“With our recalibrated caseload, expanded intelligence capability, the building of cooperation with  partners and stakeholders foreign and domestic, blockbuster funding for exceptionally large cases  and the recruitment and retention of high quality staff, I am confident that we have in place the building blocks necessary for the success of the SFO.”

Comments

You couldn't make this up!    1 thanks

chicken farmer | | Permalink

Reclaiming VAT on 'specialist staff'? Sounds like they may have a PAYE problem as well?

Time for change's picture

It would have been better to have put the

Time for change | | Permalink

horse before the cart;-

After a new chief financial officer reviewed its VAT policy, the SFO decided to stop re-claiming VAT on external counsel fees in December 2012.

In 2013, the SFO, which investigates the most serious and complex cases of fraud, bribery and corruption, asked HMRC to confirm how it should account for recovered VAT on outsourced services.

Might have been less negligent to have consulted with HMRC in December 2012?

Is said chief financial officer still in work? Hasn't Madam Hodges had anything to say about this yet? I saw that she'd now taken her "expertise" into the health service arena, this morning on the news. That lady must wear flippers rather than shoes!

What's the point    6 thanks

Andrew Nield | | Permalink

One government department deals with another government department.  The fine gets paid by Tax payers to HMRC.

Everyone involved probably fails upwards.

We the Taxpayers loose out again.

 

 

 

What!?!?

BrookesStephens | | Permalink

Bet the Serious Fraud Squad are asking themselves some pretty searching questions at the moment!!!

seems like a big fine    2 thanks

hiu612 | | Permalink

given that the story suggests there was a voluntary disclosure and the department sought HMRC guidance on correcting it.

But as Andrew says, its giving with one hand to take away with the other.

seems like a big fine

hiu612 | | Permalink

given that the story suggests there was a voluntary disclosure and the department sought HMRC guidance on correcting it.

But as Andrew says, its giving with one hand to take away with the other.

Blackadder?

hiu612 | | Permalink

BrokesStephens - is that  a nod to Blackadder goes forth? The spy in the hospital episode?

It could be my friend,....    1 thanks

BrookesStephens | | Permalink

It could be my friend,.....and I suspect the new CFO probably muttered a phrase rhyming with 'Clucking Bell' when they found out!  ;-)

 

jon_griffey's picture

A good example of public sector inefficiency    1 thanks

jon_griffey | | Permalink

This makes no sense whatsoever.

Exactly how much did it cost in professional fees and wasted time to establish that one Government department needed to pay money to another Government department?

Surely in these situations someone should just bang a few heads together, start doing it right from then on, and get on with something productive.

 

 

public service - say no more

stephen_walton | | Permalink

You need to be thankful that these incompetent idiots only work for the government as imagine the chaos they could cause in the real world

Aha!

Michael C Feltham | | Permalink

stephen_walton wrote:

......................as imagine the chaos they could cause in the real world

 

That's the core problem.

They all do: repeatedly.

And it is the voting taxpayer who suffers each and every time.

Rather reminds me of the serial incompetence of FIMBRA in the early days of financial regulation and SROs.

Fimbra went bust at least twice!

And they were intended to be doyens of rectitude, overseeing compliance!

 

 

What a complete waste of money    1 thanks

Steve Carlson | | Permalink

How much taxpayers money was spent determining how much one government department owed another? It makes a complete mockery of our tax laws to see money being wasted like this.

Tom 7000's picture

If I made a £4m vat error

Tom 7000 | | Permalink

someone would probably be in court and go to jail...

I wonder if that doesnt apply here

george.gill@themacds.com's picture

Where did he go wrong?    2 thanks

george.gill@the... | | Permalink

They got it wrong for years

A 'new broom' discovered the error and put it right

He also notified HMRC and paid the back tax

Isn't that called 'doing the right thing'?

What chance for mere mortals?

trecar | | Permalink

If a government department charged with investigating fraud makes a mistake, subsequently comes clean and is charged with penalties and interest what hope for the rest of us? Surely it says something about either the opaqueness of the regulations or the complexity of interpretation. When I started out in tax there was something about a canon saying the law should be easy to understand and one saying it should be easy to apply. Guess something got lost down the way and at a guess I would say it had something to do with common and sense. But then again politicians and tax officials were involved so maybe not!

Nick Graves's picture

Except    1 thanks

Nick Graves | | Permalink

Tom 7000 wrote:

someone would probably be in court and go to jail...

I wonder if that doesnt apply here

Guilty & don't bother trying to prove innocence only applies to us & not to Public Serpents.

Just as every cop is a criminal
And all the sinners saints
As heads is tails
Just call me Lucifer
Cause I'm in need of some restraint

 

 

k743snx's picture

"We the Taxpayers loose out    3 thanks

k743snx | | Permalink

"We the Taxpayers loose out again"

 

...... not to mention the teachers of spelling and punctuation.

lionofludesch's picture

Eh dear    2 thanks

lionofludesch | | Permalink

Government fines itself.

Fantastic.  How much was wasted investigating itself ?

HMRC wrongly claims to have generated almost £4bn in additional    1 thanks

michaelblake | | Permalink

 

This story is trumped only by the story (if true) reported in today's Independent newspaper which notes that 

"HMRC wrongly claimed to have generated almost £4bn in additional tax income (sic) for the Exchequer, the Whitehall spending watchdog said yesterday. The NAO accepted that HMRC had "inadvertently" mistaken performance targets for tax compliance yield in 2010-20211"

Does this count as a "careless" error?

 

SFO name is accurate

leon0001 | | Permalink

I'd certainly agree that unlawfully claiming £4m input tax is a Serious Fraud. 

BrookesStephens

HUGH W DUNLOP | | Permalink

But in the words of all officials 'Lessons have been learned' The problem is they never use any of these lessons.

Why not?

may2011 | | Permalink

Why were they not allowed to reclaim VAT on fees?

And why does a government dept need to be VAT registered anyway? It's not a business, or is it?

buttercup books's picture

Why can't they claim the vat?    1 thanks

buttercup books | | Permalink

Reading through the thread I'm asking myself - why can't they reclaim the VAT - and I see the last comment asks the same question -

 

So - why can't they claim the vat back - I claim VAT back on vated invoices from solicitors, accountants and any other VATed invoice I receive -

 

what is happening here that they can't reclaim the £4m?????

george.gill@themacds.com's picture

I think the rule is you can    1 thanks

george.gill@the... | | Permalink

I think the rule is you can reclaim the VAT on expenditure incurred in the course of your VATable activities.  Presumably some of SFO's activities are VATable and some are not.

Fimbra incompetence

robertgarrod | | Permalink

I was disciplined by ICAEW for conspiring with a client who was insolvent for the previous 3 years, whereas, of course,  it was ICAEW who were conspiring with FIMBRA, to get them off the hook for allowing the insolvency to continue for 3 years.

The case last for over 4 years.

When I requested the file I was handed an almost indecipherable copy  where notes were omitted .

It occurs to me that ICAEW were equally incompetent.

 

 

Fimbra incompetence

HUGH W DUNLOP | | Permalink

And they are apparently not alone of the professional bodies in colluding to safeguard their members against the proven truth.

You couldn't make it up

gilderda | | Permalink

Although sadly, in many cases it appears the SFO does just that...

Malcolm McFarlin's picture

Special rules for barristers

Malcolm McFarlin | | Permalink

Buttercupbooks

In answer to your query. A concessionary treatment was agreed with HMRC with regard to Counsel's fees. The agent (presumably the SFO) may treat the counsel's advice as supplied directly to the client and the settlement of the fees as a disbursement. Counsel's VAT invoice should be amended by adding the name and address of the client to it and inserting 'per' before the agent's name and address. The fee note from counsel will then be recognised as a valid VAT invoice in the hands of the client. The SFO would not be allowed to claim the input tax.

I'm not sure who the SFO's client would be in this scenario -perhaps another government department?? If so this would presumably have led to a potential double claim of input tax.

Malcolm McFarlin

www.mandrtaxadvisers.com